The FSB Bulletin is published
quarterly free of charge. Views
expressed by contributors are not
necessarily those of the FSB.
Reproduction, copying or extracting by any means of the whole or
part of this publication may not be
undertaken without the prior permission of the editor.
Editor
Mr Elias Phiyega
Sub-editor
Ms Bessie Venter
Contents
Appointments
Dube Tshidi appointed to top international position
FSB ready to face risks
Bulletin in new hands
4
FSB grants special FAIS exemption
5
Editorial Committee
Mr Jeff van Rooyen
Mr Russel Michaels
Smooth changing of the reins in FSB’s insurance department
6
FSB to deal head-on with non-compliance
7
Front page and designs
IE Communications
(012) 347 2882
Wheels are turning in the consumer education department
8
Consumer education programme launched in Pretoria
9
Deal only with FAIS-licenced advisors - Jabu Moleketi
10
FSB launches consumer education foundation
11
The impact of South Africa’s insider trading regime
By Alex Pascoe
12
The G:enesis report in a nutshell
13
FSB hosts high-level CISNA meeting
14
Enforce regulation, Jabu Moleketi tells regulator
14
Bank, treasury team to look into finance regulator
15
Investment of pension funds follows interesting pattern
By Dr Elmarie de la Rey
16
FSB says beware of advance fee scams
17
FSB warns against phony forex dealers
17
Deel-Smith trustees to be prosecuted
18
Lay-out
Ms Bessie Venter
Subscriptions
All subscription enquiries should
be directed to Francisca van der
Merwe at the contact details below.
Contributions
Contributions to the FSB Bulletin
are welcome and should be sent to
the sub-editor at the address below.
The editor reserves the right to
edit contributions.
Postal information
PO Box 35655
Menlo Park
0102
Republic of South Africa
Tel: (012) 428 8155
Fax: (012) 347 0669
e-mail: [email protected]
The FSB
Bulletin is
available on
the Internet:
www.fsb.co.za
Third Quar ter 2004
Letters to the editor may
be submitted to Bessie
Venter,
PO Box 35655,
Menlo Park, 0102 or to
[email protected]
FSB Bulletin
3
Appointments
FSB official appointed to
top international position
Dube Tshidi, deputy
executive officer, of
Retirement Funds and
Friendly Societies
Dube Tshidi, the FSB’s deputy executive
officer, of Retirement Funds and Friendly
Societies, has been appointed vice-president of the newly established International
Organisation of Pension Supervisors
(IOPS). The IOPS, an independent body,
was established in Paris on 12 July. Tshidi,
who took up his position as deputy executive officer with the FSB in January 2002,
was appointed vice-president of the organisation’s executive committee at the organisation’s inaugural meeting.
Initiated by the International Network
of Pensions Regulators and Supervisors
(INPRS) of the Organisation for
Economic Co-operation and Development
(OECD), the organisation will promote
international co-operation and provide a
worldwide forum for dialogue and
exchange of information, among others.
IOPS aims to set international standards
on pension supervisory issues. “It is an
exciting development, particularly for
emerging markets that are striving to
develop pension systems. The IOPS is
there to support such endeavours,” Tshidi
said.
President
John Ashcroft of the Occupational
Pensions Regulatory Authority in the
United Kingdom was appointed president
of the IOPS. Other members of the executive committee represent pensions supervisors in Australia, China, Hungary, Italy,
Jamaica, Jordan, Mexico, the Netherlands
and Pakistan.
FSB ready to face risks Bulletin in
new hands
“FSB staff should have a clear understanding of the risks and governance issues faced
by the organisation and the industries it
regulates after about 85% of employees
attended workshops on risk management
and corporate governance,” says Willemien
de Jager, Risk Officer of the FSB.
Risk management workshops were held
in July to raise the understanding of risk
management and corporate governance
among all FSB employees.
The workshop on risk management
looked at the roles of the business units,
the risk function, internal audit and the
board. Presented by Wessie van der
Westhuizen of PriceWaterhouseCoopers, it
offered staff the opportunity to also identify risks, which will complement the risks
previously identified by management.
Carla Redfern and Pamela Kuyinu of
Deloitte presented the workshop on corporate governance. The workshop emphasised that corporate governance was the
responsibility of all staff, and that it could
4
Willemien de Jager, risk officer of the FSB
not be removed from the day-to-day management of an organisation.
FSB Bulletin
Elias Phiyega is the new editor of the FSB
Bulletin.
He is an attorney and has headed the
FSB’s legal department since August 2003.
He was company secretary and general
manager of corporate services at Armscor
before he joined the FSB.
Phiyega
plans to make
the FSB
Bulletin more
accessible to a
broader audience. He
believes that
topics on
financial services need not
be pedantic
and academic,
but should be
easy to read.
Third Quar ter 2004
FSB grants special FAIS exemption
J
Third Quar ter 2004
The FSB has raced
against the clock to
process thousands of
applications in time,
but a backlog due to
incomplete and lastminute applications
have necessitated the
interim measure.
despite an appeal by the organisation earlier this year for applications to be submitted at least two months before the deadline of 30 September.
By 31 July, the FSB had received about
6 200 of an expected 15 000 applications.
This means that about 5 500 of a total of
11 700 applications were received after 31
July. This caused a serious backlog, which
was compounded by factors such as
incomplete application forms.
The exemption, which was published
in the Government Gazette by the end of
September, relates to section 7(1) of the
FAIS Act. The section stipulates that FSPs
should be in possession of a licence from
the FSB by 30 September to indicate that
they are fit and proper to conduct business
as financial advisers or brokers.
Only 2 500 FSPs have been given
licences by the time the announcement of
the exemption was made on 22
September. The FSB said the figure
included most banks, insurance companies
and brokerages.
By mid September the FSB expressed
FSB Bulletin
concern that some FSPs still did not know
what was required to obtain a licence.
Over 4 000 pre-registration FSP numbers
have been allocated for which no applications have been received.
The FSB said a possible explanation for
this was that the unique numbers were
allocated to potential FSPs who thought
they required only a number to be
licenced. The FSB emphasised that the
mere possession of an FSP number does
not indicate that a licence has been granted.
The FSB contacted all those applicants
who have received pre-registration FSP
numbers but whose applications were outstanding to establish the reason why they
have not submitted application forms. If
no satisfactory explanation was forthcoming, the number was summarily cancelled.
Applicants and consumers may use
these contact details to enquire about the
status of the FSP’s application:
www.fsb.co.za or by calling the FSB call
centre at 0800 202087.
Source: FSB media release
22 September 2004
eff van Rooyen, executive officer
of the FSB, announced a special
exemption for financial services
providers whose application for a
licence had not been processed
before 30 September.
In terms of the Financial Advisory and
Intermediary Services (FAIS) Act, 2002,
financial services providers (FSPs) had to
receive a licence from the FSB before 30
September this year when the Act came
into force.
The FSB has raced against the clock to
process thousands of applications in time,
but a backlog due to incomplete and lastminute applications has necessitated the
interim measure.
“All financial services providers whose
applications have been submitted by 29
September, and were on that date still
pending, would be allowed to continue
doing business,” Van Rooyen said.
He emphasised, however, that FSPs
who have not applied for registration with
the FSB in terms of FAIS by 29
September, would not be allowed to continue with their business until their
licences have been issued.
“FSPs should understand that the
exemption is only relevant to those who
have kept to the 29 September deadline.
The exemption is valid until an application has been granted or refused.
Furthermore, FSPs are exempted provided
that they inform their clients of their
rights to submit complaints to the
Ombud for Financial Services Providers.”
Van Rooyen made the announcement
at a meeting of the deputy minister of
finance, Jabu Moleketi, with FSPs and the
media regarding FAIS in Pretoria.
It follows a massive increase in applications received by the FSB since 31 July,
5
Smooth changing of the guard
in FSB’s insurance department
he reins of the insurance industry at the Financial Services
Board (FSB) changed hands
from one Deputy Executive
Officer (DEO) to another at
the end of August. This happened without
any glitches.
Outgoing DEO of Insurance, André
Swanepoel, who retired from the service of
the FSB at the end of August, says his
successor, Mashudu Munyai, was
firmly seated in his new position. “I
am now looking forward to a busy
and exciting retirement,” he said.
Swanepoel took up the position of
DEO of pension funds and insurance
at the FSB in May 1991, and became
the DEO of insurance in 2001 when
the two functions were split.
He said his retiring from the FSB did
not mean that he was punching out permanently. “I have established wonderful
relationships in the financial services
industry during my tenure at the FSB, and
I hope to retain some of those bonds and
continue to work with the friends I have
made long after my retirement,” he said.
T
Farewell function
During a farewell function at the FSB on
20 August, Swanepoel said his wish for the
FSB was that it would become the kind of
institution that everybody looked up to.
“The FSB is very special; it is one of a
kind. My expectations for the organisation
is that it will be able to realise its full
potential,” he said.
He said with the necessary discipline
and integrity the FSB had the ability to be
the revered institution that it is.
Munyai, previously a partner at
PriceWaterhouseCoopers, is a university of
the Witwatersrand graduate who qualified
as a chartered accountant in 1996. He was
appointed the new DEO three months
before Swanepoel’s departure to ensure a
smooth transition.
About his long-term vision for the FSB,
Munyai said the FSB’s resources, especially
its human capital, would be a main focus
over the next few years. “We have the necessary skills and culture, but some ingredients are still lacking, mostly because of the
various initiatives the organisation intro6
New DEO at
insurance
"My expectations for the
organisation is that it will be
able to realise its full potential." - Mashudu Munyai
duced recently,” he said.
He said the appointment of new
FSB board members during the
past year when the FSB started
moving towards risk-based supervision and paying attention to corporate governance was a welcome
development. “We have set a new
tone, and need to blend the fresh
influences into a solid whole,” he
added.
Munyai has great respect for the FSB’s
relationship with its stakeholders. “The
FSB is adopting a risk-based supervision
approach in order for it to be more effective and efficient. Through constant interaction with consumers and the industry,
we create appreciation for the way we do
things, while at the same time learning
how others do things, including international best practice, so that no expectation
gaps are created,” he said.
Munyai supports the FSB’s approach to
align its strategic goals with general government policies and regulatory framework, such as the Financial Intelligence
Centre Act. “We have to ensure that not
only the FSB, but also the industries we
supervise are complying with government’s
strategies such as combating crime, corporate governance and broad-based Black
economic empowerment,” he said.
“As regulator the FSB needs to be exemplary in its actions, and therefore needs to
move swiftly to address the gaps in this
regard. But most of all we must address
our responsibility to safeguard the interests
of the communities, especially the policyholders we serve,” he concluded.
"I have established wonderful
relationships in the financial
services industry during my
tenure at the FSB." – André
Swanepoel
FSB Bulletin
Third Quar ter 2004
FSB to deal head-on with
non-compliance
he Financial Services Board says
it is geared towards dealing
head-on with non-compliance
in the financial services industry.
In its 2004 annual report,
which was tabled in Parliament by the
minister of finance in September, the
board said it was shifting its focus from
creating a world-class regulatory framework to enforcing the laws that govern it.
Cyrus Rustomjee, the chairperson of
the FSB, said in his review that the organisation would be shifting emphasis to
implementing and enforcing legislation.
“Our biggest challenge will be to enhance
the mechanisms for enforcement,” he said.
Jeff van Rooyen, executive officer of the
FSB, echoed this sentiment during the
Institute of Retirement Funds’ annual conference in Cape Town. Van Rooyen said
the organisation would target non-compliance “without fear or favour”.
A recent independent survey on insider
T
trading confirmed that the FSB's
enforcement regime has significantly changed market perceptions regarding insider trading
in the past few years. (See article on p 12.)
Van Rooyen said the FSB
would like to see similar
results in other areas of its
remit. “We are moving
away from a passive,
back-office approach to
a proactive, risk-based
approach,” he added.
He warned, however, that the new approach in
turn would necessitate additional capacity
for on-site visits and inspections. “Industry
levies would undoubtedly have to be
increased above inflation levels to accommodate the FSB’s increased capacity,” he
said.
Rustomjee’s review in the annual report
The FSB’s 2003/2004 annual
report was tabled in parliament in September. The report
is available from Astrid de Vos
at the FSB’s communications
department. Her contact number is (012) 428-8116
also stated that the FSB would step up
efforts to increase the financial literacy levels of consumers of financial services and
products
He said increasing access to financial
services in South Africa was an important
means of income generation and poverty
alleviation. “By promoting a regulatory
regime that accommodates the needs of
consumers of financial services in poor and
rural areas, the FSB encourages financial
development and in this way contributes
to economic growth and poverty alleviation.”
The FSB is responsible for regulating
South Africa’s non-banking financial services industry which is worth more than
R4 000 billion. This includes capital markets, life insurance, retirement funds and
collective investment schemes.
Jeff van Rooyen
Third Quar ter 2004
Cyrus Rustomjee
FSB Bulletin
Source: FSB media release
20 September 2004
7
Wheels are turning in the
consumer education department
he wheels are turning at the
FSB’s consumer education
department where numerous
projects are in the pipeline to
help South African consumers
make informed decisions on financial matters.
According to Olivia Davids, head of the
department, the formal education sector is
one of the department’s focus areas.
“We are revisiting our work in the formal education sector. The plan is to meet
with the national ministry of education to
discuss partnering with them to facilitate
the integration of consumer financial education in the formal education sector.
Furthermore, meetings are also being
organised with provincial departments of
education to expand the sphere of influence of the work of the FSB, specifically
in schools, universities and colleges,” she
says.
According to Davids, meetings will be
arranged with organisations and institutions that are already implementing consumer financial education in the formal
education sector to see how the FSB may
be able to partner with them. The input
from all these discussions will form the
basis of an FSB strategy for integrating
consumer financial education into the formal education sector.
Davids says that fundraising is presently
a major priority for the department. “All
staff will participate in developing a strategy to raise funds countrywide. Focused
presentations will be prepared and delivered to prospective partners in industry,
T
8
business, community organisations and
government in all the provinces of South
Africa. Some partnership agreements are
pending and once some commitment has
been made, these interested persons or
bodies will be invited to present their proposals to the Consumer Education Review
Committee for input prior to implementation.”
Davids points out that another meeting of international donors will take place
later in the year.
Consumer alerts
Davids says that her department is developing consumer alerts which will be posted on the FSB web site. “The first set of
alerts will deal with Internet scams and
how consumers can protect themselves
against these. The web sites of other international regulators are being consulted for
the design and functioning of appropriate
links.” Regular consumer financial educational radio and television slots are also in
the pipeline.
Jerry Kuye, director of the School of Public Management and
Administration of the University of Pretoria and Paula van Dyk,
National Treasury, at the launch
FSB Bulletin
Third Quar ter 2004
“We are looking at the possibility of
using programmes such as comedy shows,
case studies and soap operas to convey the
messages. The FSB is also looking for cosponsors for this project,” she says.
Promotional material
The consumer education department has
developed and printed information postcards which will be placed at strategic venues for people to pick up free of charge.
“The design of the postcards is such that
even the postal employees will read the
educational message. These postcards will
also be used as handouts at community
events and workshops. Other items to promote the FSB and the importance of consumer financial literacy have also been prepared for use in mini-competitions and
outside broadcasts throughout South
Africa. To date, the department has distributed 9 900 funeral policy brochures.
These brochures were developed in collaboration with the Life Offices Association
(LOA).”
Road shows
“As part of the FSB’s awareness campaign,
road shows were held in Pietermaritzburg,
Empangeni and Newcastle to inform consumers of the pension fund surplusses.
These road shows were conducted in
IsiZulu.
“Further road shows are planned for later
in the year. The department is also preparing a brochure on pension surplusses to
hand out at the remaining road shows,”
according to Davids.
Web site
Consumer education programme
launched in Pretoria
The FSB’s mission to increase financial literacy among South African consumers
received a further boost with the official
launch of this programme at Gallagher
Estate earlier this year.
Deputy finance minister Jabu Moloketi
was the guest speaker. The meeting was
attended by approximately 200 members
of various institutions and organisations
such as the diplomatic corps, Tshwane
Metropolitan Council, FSB board, Policy
Board on Financial Services and
Regulation, the Review Committee, the
Financial Services Consumer Advisory
Panel, representatives of the financial services industry, the media and FSB staff.
Moleketi emphasised the need for consumer education while Gerry Anderson,
deputy executive officer responsible for
consumer education at the FSB, appealed
for support for the Financial Services
Consumer Education Foundation. Ms
Olivia Davids, head of the FSB’s consumer education department gave an
overview of the consumer education programme. (See report on p 10.)
The launch was concluded with a performance by Grade 7 learners of the
Ikaleng Primary School in Soweto. The
performance, an initiative of the learners
themselves, had consumer education and
consumer rights as theme.
Davids says that the department’s web site
is updated on regular basis and, in addition
to the vision and mission of the consumer
education department and the FSB’s consumer education initiative, several other
items have been added. These are:
• The funeral policy brochure
• The FSB’s co-branding policy
• A summary of the consumer education
department’s strategic objectives
Community initiatives
According to Davids, the consumer education department is preparing to expand its
promotion and facilitation roles to all the
provinces of South Africa. Up until now
the department was only involved in four
provinces.
continued on p 10
Gabriel Davel of the Micro Finance
Regulatory Council and the FSB’s Olivia
Davids, head of the consumer department, at the launch
Jeff van Rooyen (executive officer, FSB), Errol Kruger
(registrar of banks) and Jabu Moleketi (deputy minister of finance) at the launch
Third Quar ter 2004
FSB Bulletin
9
Deal only with Fais-licenced
advisors - Jabu Moleketi
eputy finance minister Jabu
Moloketi says the message not
to do business with someone
unless you are certain that they
have a valid Financial Advisory
and Intermediary Services (FAIS) licence,
must be spread throughout South Africa.
“From the end of September, all financial advisors must be registered and
licenced with the FSB. They are by law
required to provide their clients with certain minimum information before advising them to purchase certain products or
services.
“However, a consumer who is unaware
of FAIS and all the technical issues that
surround the provision of financial advice
is only marginally protected. The FSB will
not be able to police every interaction
between an advisor and their clients."
Moleketi, who said he wholeheartedly
supported the consumer education initiative, added that the best protection a consumer could have was for financial services
providers to provide clear, understandable
information together with an explanation
of how such information was used to
arrive at an optimum choice of investments, savings, risk or other transactional
product.
“Information about products on its own
is not a useful tool to the majority of
South Africans. This is especially the case
where information is in English and riddled with technical jargon, and where it is
only made available when a transaction is
almost complete. For example, a copy of a
life insurance policy document is only
given to a consumer once they have agreed
to purchase the cover.”
The deputy minister also voiced his concern about the growth of unscrupulous
operators involved in “fly-by-night”
schemes that promise in most cases instant
wealth, new homes, new cars and all material possessions that can be acquired with
an abundance of money.
“The proliferation of pyramid schemes,
unregistered investment products, persons
selling insurance products but are not in
turn passing the premiums to a registered
insurer and microlenders that charge exor-
D
10
bitant rates can only be stopped if consumers are educated about such schemes
and know the difference between genuine
as opposed to fraudulent products or
schemes.
“Improving access to financial services
coupled with improved consumer education will mean a more sustainable move
towards bridging the divide between the
rich and poor in South Africa.
“Consumer education is a partnership
and is not the responsibility of government alone, nor the sole responsibility of
industry. It is my belief that the burden of
responsibility resides with industry because
they create and market products that can
dramatically affect the financial health of
South African savings.”
FSB deputy executive officer for FAIS,
Gerry Anderson said the regulator was
finalising the establishment of the
Financial Services Consumer Education
Foundation to manage the funding of the
consumer education programme.
Regarding the CONSUMER
EDUCATION STRATEGY, FSB
consumer education head, Olivia
Davids said the initiative has three
main themes.
Wheels are turning
from page 9
“In preparation for this work, meetings are being arranged with all provincial consumer affairs departments, as
well as with other government department clusters that are relevant to consumer financial education, such as
Education and Social Development.
“The idea is to establish partnerships
and in some cases, renew partnerships
and to come to an agreement on how
we wish to work together continuously.
The presentation will also include a
fundraising aspect,” she says.
Training of field officers
• Education regarding effective savings
and debt management
• Knowledge of what products and services are available and which might be
applicable to the needs of a particular
consumer
• Awareness about the need for caution
when purchasing financial products and
services and also knowledge of the rights
and responsibilities of consumers and
the options for recourse should something go wrong.
Source: FSB media release
28 July 2004
FSB Bulletin
Two staff members of the consumer
education department have just completed their in-house training on funeral
policies and have begun to meet with
various structures in Atteridgeville and
Mamelodi (to start off with) to officially
begin talking to consumers and distributing the funeral assistance brochures.
“They will be visiting taxi ranks, pension and other pay points, informal settlements and a number of communities
around Pretoria as time goes by. They
will also be available to assist community relations consultants in other parts of
the country with consumer education
on funeral policies.
Third Quar ter 2004
FSB launches consumer
education foundation
A new era for consumers has dawned now
that the Financial Services Consumer
Education Foundation has been launched.
According to Russel Michaels, head of
the FSB’s communication and liaison
department, discussions between the regulator and various parties considered by the
FSB as partners in its consumer education
mission have agreed that a discretionary
trust governed by independent trustees,
may provide a useful means for donor support to the FSB’s stated mission.
The objectives of the Foundation are:
• Promoting awareness by consumers of
financial products and services of their
rights and the channels available to
them to seek recourse where their rights
have been infringed;
• Educating consumers of financial products and services on the need for responsible management of their financial
affairs;
• Promoting awareness by consumers of
financial products and services of the
dangers to which they are exposed due
to pressure from unscrupulous persons
operating in the markets;
• Promoting the use of the formal financial services markets, which are regulated, by those who do not yet avail themselves of the financial products and services available;
Third Quar ter 2004
• Promoting awareness of the financial
products available and the need to
ensure that products are appropriate to
the consumer needs;
• The educational enrichment, supplementary tuition, outreach and awareness
programmes for consumers regarding
financial services, aimed especially at
those consumers who are new to the
financial services market;
• Any other activity towards promoting
the education and information of consumers so as to serve the needs, interests
and well-being of the general public in
the field of financial services.
“The activities of the Foundation in furthering its aims and objectives are carried
out for non-profit and the beneficiaries are
consumers at large, including any sector
identified by the trustees. The Foundation
has applied for tax exemption for donors.
“At least 85% of the Foundation’s source
of funding will be grants from any organs
of state, any foreign grants, or from any
other donations,” Michaels said.
He pointed out that at leat 85% of the
Foundation’s activities will be carried out
for the benefit of all South Africans and
will be widely accessible to the general
public.”
The Foundation’s trustees are: Roy
Andersen, Rick Cottrell, Christo
FSB Bulletin
Liebenberg, Ephraim Mokgokong, Dawn
Mokhobo, Raletsatsi Moraka, Nthato
Motlana, Yvonne Motsisi, Gloria Serobe,
Esther van Kerken, Jeff van Rooyen and
Gail Walters.
Source: FSB Media release
20 September 2004
At the launch were from left:
Nthato Motlana, Esther van
Kerken, Yvonne Motsisi, Roy
Andersen, Gail Walters and
Jeff van Rooyen
11
The impact of South Africa’s
insider trading regime
Insider trading was first made
illegal in South Africa in the
Companies Act, 1973. This act
failed in its attempt to govern
insider trading and by the mid1990s there was a perception
that the South African markets
had a high level of insider trading. In 1997, the King Task
Group recommended a reform
of the insider trading regime. In
1998, on King’s recommendations, the provisions in the
Companies Act were replaced by
the Insider Trading Act.
he new legislation is aimed at
raising South Africa’a insider
trading legislation to a level that
would make it comparable with
international best practice. This
is done by including stricter definitions of
insider trading and allowing for civil
action to be taken against insider traders.
It has been just over five years since the
introduction of the act. The Insider
Trading Directorate commissioned G:enesis, an economics consulting firm, to conduct market research to gauge the impact
that the new legislation has had on the
T
12
By Alex Pascoe, Financial Specialist, Insider Trading
South African financial markets.
The impact of the new anti-insider trading regime was measured indirectly by
means of a survey and tracking investigative activity. The respondents who participated in the survey included actively traded listed companies, member firms of the
JSE, asset management firms, corporate
finance firms, audit firms and law firms.
FINDINGS OF THE G:ENESIS
REPORT
The deterrent
The civil provisions of the act have been
the main tools utilised by the FSB, resulting in 19 settlements over the last five
years. Total penalties levied have exceeded
R47 million, excluding legal costs. Even
though most of the settlements were settled without admission of liability, some
80% of respondents believed that individuals who settled with the FSB were either
guilty or probably guilty. The survey
showed that the respondents were far more
concerned about how settling would be
perceived within the market place. When
asked what their most important consideration would be when settling • 75% said damage to their career;
• 12% said the shame of being caught;
and
• 4% said getting their name in the paper.
FSB Bulletin
In total 90% of respondents reported that
if a colleague settled, their most pressing
concern would be the damage to the firm’s
reputation. For 36% of respondents, a secondary concern was their colleague’s
employment future.
Changing attitudes
Market participants report that there has
been a notable change in attitudes towards
insider trading since 1998. Some 90% of
respondents reported that insider trading
has become less or much less acceptable.
Insider trading is reported to be unacceptable in South Africa’s financial markets by
71% of respondents. A significant minority of 22% report that it is still somewhat
acceptable.
Changing attitudes in the market
The most costly aspect of settling with the
FSB is the damage to the firm’s reputation
and the person’s career. There are indications that this stigma developed after the
introduction of the insider trading regime.
Insider trading policies
The majority of listed companies (59%)
have implemented insider trading policies.
It is significant that the majority of companies implementing formal insider trading policies only did so after a significant
Third Quar ter 2004
number of settlements. This suggests that
companies responded to the active
enforcement of the act rather than the
promulgation of the act itself.
Education and awareness
Respondents were asked how aware people
they met in their working lives were of
insider trading laws. A total of 93% of
respondents stated that associates in their
working life were quite or very aware.
Company secretaries reported that their
associates were the least aware of all
respondents. In contrast, compliance officers reported that their colleagues were the
most aware. Some 89% of respondents
reported that there had been an increase
in awareness over the past five years and
82% of listed companies have increased
the budgets for education aimed at insider
trading over the past five years.
Changing norms
Conclusion
During the period in which the regime has
been in operation, insider trading has
become unacceptable within the market.
Respondents’ concerns about the effect on
reputation and career of settling an insider
trading investigation reflect these changing
attitudes.
Asset managers and traders have
observed an improvement in the efficiency
of South Africa’s financial markets since
the inception of the insider-trading directorate at the FSB.
In total, 68% of respondents in general
and 80% of traders and asset managers
reported that the insider trading regime
has been a success.
This success is reflected in the wideranging changes in attitudes, procedures,
awareness and education that the insider
trading regime has precipitated.
Furthermore, indications are that the
regime has successfully decreased the level
of insider trading.
Areas for improvement
Levels of awareness about insider trading
laws are low in 29% of listed companies
interviewed and 18% did not have insider
trading policies. There is also a concern
with the smaller brokerages, as 60% did
not have compliance manuals and only
20% had procedures to deal with insider
trading.
The effect on insider trading
It was argued that the insider trading
regime would decrease the levels of insider
trading if it changed incentives and
norms. The results from the survey show
that there have been wide ranging changes
in both.
Changing incentives
As has been stated above the insider-trading directorate has reached a number of
settlements. Almost all respondents
reported that damage to their careers
would be the most significant cost of settling. This suggests that settlements provide a significant deterrent. Settlements
seem to have led to the implementation of
procedures at listed companies. These
should make it difficult for company
insiders to engage in insider trading, and
should decrease the flow of inside information to the market, thus diminishing
opportunities to engage in insider trading.
Therefore, the survey suggests that the
incentive to engage in insider trading has
diminished in the past five years as a consequence of the insider trading regime.
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The G:enesis report was launched amid great interest in
Johannesburg. At the launch were from left: Rob Barrow (deputy
executive officer, Investment Institutions of the FSB), Gerhard van
Deventer (executive director, Insider Trading), Tony Ferreira (an
forensic investigator at the inspectorate department of the FSB)
and Alex Pascoe (financial specialist, Insider Trading).
The G:enesis report in a nutshell
The overall conclusions of the G:enesis
report are that the new regime has changed
prevailing attitudes to insider trading,
resulted in new policies and approaches
among listed corporates and their advisors
and - according to most market participants - led to a sharp reduction in the perceived incidence of insider trading.
Among the findings of the survey:
• Market participants have become more
aware of insider trading rules and regulations (according to 93% of respondents).
• Insider trading has become markedly
less acceptable (according to 80% of
respondents).
• Education at listed companies has
increased (according to 82% of listed
companies).
• Some 77% of traders and asset managers viewed the insider trading regime
as having been either very successful or
successful in reducing insider trading.
• The JSE’s insider trading booklet has
FSB Bulletin
been widely read (54% of respondents
had read it).
• The majority of listed companies have
implemented insider trading policies
(59% of listed companies).
The survey also revealed a limited number
of areas in which there is room for
improvement.
The survey sheds light on how the new
legislation has made an impact. In short,
public enforcement of the legislation has
contributed to a change in attitudes about
the acceptability of insider trading. This, in
turn, has dramatically raised the costs of
being associated with insider trading.
Companies suffer loss of reputation,
reflected in the buying decisions of institutions; and individuals find their career
prospects diminished along with their reputations. This dynamic, driven mainly by
visible enforcement, is at the root of the
success of the new regime.
13
FSB hosts high-level CISNA meeting
Executive Officer of the FSB, Jeff van
Rooyen, says the Southern African
Development Community (SADC) region
has the potential to become a safe haven
for domestic and foreign investors.
Van Rooyen was addressing a special
Committee for Insurance, Securities and
Non-banking Financial Authorities
(CISNA) meeting in Sandton during
August.
The purpose of the meeting was to
reflect on the progress of CISNA, its role
in the New Partnership for Africa’s
Development (NEPAD) and to develop a
common set of objectives for the future.
The meeting took place in line with a
decision taken at the previous CISNA
meeting held in April 2004 in Mauritius
for high-level talks about issues pertinent
to member countries.
Angola, Botswana, Lesotho, Malawi,
Mauritius, Mozambique, Namibia, South
Africa, Swaziland, Tanzania and
Zimbabwe attended the meeting.
One of CISNA’s objectives is to promote the development of sound regulatory
frameworks in Africa, notably in the
SADC countries.
Discussions during the meeting focused
on the following:
• The particular challenges facing each of
the jurisdictions
• Developments within the international
regulatory bodies (IOSCO, IAIS and
IOPRS) and how these developments
impact on CISNA
• Review of progress regarding CISNA’s
strategic plan
• CISNA’s role with regard to NEPAD
• Views on the way forward and plans of
action.
Van Rooyen said there were several pillars
of sound financial services regulation:
• A strong, reliable and trusted accounting profession
• Culture of sound corporate governance
• Culture of ethical behaviour
• Informed consumers of financial products and services.
Enforce regulation,
Jabu Moleketi tells regulator
D
eputy finance minister, Jabu
Moleketi, says the Committee
of Insurance and Non- banking Authorities (CISNA) has a responsibility to the people of the Southern
African Development Community
(SADC) to ensure that savings in the
region are not squandered through
unregistered, fraudulent or unscrupulous
service providers.
In a message read on his behalf at a
special CISNA meeting in Johannesburg,
Moleketi said each regulator had a duty
to ensure that consumers were protected
14
and educated. The meeting was to
reflect on the progress of CISNA and
CISNA’s role in the New Partnership for
Africa’s Development (NEPAD) and to
develop a common set of objectives for
the future.
“Southern Africa’s economic development and that of Africa is dependent on
the integrity of our markets, financial
services providers and regulatory regimes
that govern them.
“Part of the plan to uplift the region is
centred on poverty alleviation. This does
not only imply increased access to
FSB Bulletin
employment, but also access to services
that enable people to safely and costeffectively save their income, invest for
their retirement and plan for life’s eventualities.
“It is the responsibility of governments
in SADC, in collaboration with regulatory authorities to ensure that financial
services are accessible to a majority of the
people in our region,” Moleketi said.
Source: FSB media release
6 August 2004
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At the CISNA meeting: Left are Mashudu
Munyai (deputy executive officer, Insurance,
FSB), Elias Phiyega (head, Legal and Policy,
FSB) and Ellen Richard (chief financial
administrator, Money and Banking, Ministry
of Finance and Development Planning,
Botswana)
Bottom right: Dr Joao Valentim Dias dos
Santos, (legal advisor, Banco Nacional De
Angola), Dr Josefa Segunda Fernandes,
(head of investment department, Banco
Nacional De Angola) and Dominzos Antonio
Jose (inspector general, The Supervisory
Authority for Insurance, Mozambique)
Bottom left: Elaina Consalves (director,
Insurance and Pension, Ministry of Finance
and Development Planning, Botswana and
Melonie van Zyl (specialist, Registration and
Policy, FSB)
Bank, treasury team to look into
finance regulator
oves to create a super regulator
for the financial services industry
have been taken a step further
with the formation of a joint
task team from the Reserve Bank
and national treasury to investigate integration of financial regulation.
Finance Minister Trevor Manuel told
Parliament earlier this year that the task
team had agreed to a discussion framework in March, and would complete its
research by September. Its recommendations would be discussed in workshops
with stakeholders, Manuel said.
If the super regulator is recommended,
the Reserve Bank and National Treasury
will be placed against each other because
each of them holds a different view regarding the matter. The Reserve Bank as well
M
Third Quar ter 2004
as private sector banks believe that banking supervision should remain the preserve
of the Reserve Bank.
Manuel said the task team would review
the existing financial regulatory environment and recommend an appropriate
institutional framework for effective financial regulatory functioning.
“The objective of the task team is to
obtain an understanding of regulatory best
practice in the South African context and
to prepare a position paper to guide policy
formulation,” he said.
The Bank and Treasury agreed to provide mutual assistance and exchange information “subject to relevant laws, for the
purpose of ensuring a (mutually) consultative process on monetary and fiscal policies”, said Manuel.
FSB Bulletin
“Standing committees would deal with
macroeconomic issues, banking and financial market issues and financial and regulatory issues,” he said. They would meet at
least twice a year.
The consultative process would involve
bilateral talks between Reserve Bank
Governor Tito Mboweni and Manuel.
Manuel said a multilateral consultative
workshop would be formed after the
research report had been completed to
ensure any institutional changes would be
in the best long-term interests of a “sound
and efficient financial system”.
“The team has engaged independent
consultants to update existing research.
This research will take place between now
and the end of September 2004.”
15
Investment of pension funds follows
interesting pattern
The investment pattern for self-administered pension funds, according to the
Registrar of Pension Funds’ report for
2002, makes for interesting reading, says
Dr Elmarie de la Rey, senior manager of
the FSB’s legal department. The report
also shows that there is a significant
decline in membership of retirement
funds. Dr De la Rey recently addressed a
meeting of the Namibian Economist
Business Forum on the importance of
retirement institutions to contribute to
broad-based economic development. She
inter alia placed South African retirement funds under the spotlight.
etirement funding is probably
the most important form of
national savings to stimulate
and develop the national economy, yet at the same time there
are serious restraints on the type of investment that can be made with these funds.
All retirement funds in South Africa
must register with the Registrar of Pension
Funds, with the exception of funds established in terms of an Act of Parliament and
certain funds registered with the
Department of Labour.
Statistical information must, however,
be supplied by all funds, including the
exempted ones, to the Registrar. This
information appears once a year in the registrar’s Annual Report. The latest available
pensions report is for the 2002 calendar
year.
In terms of the Registrar’s report for
2002, total membership in that year was
9 779 884 of which 8 567 479 were active
members and 1 212 405 were pensioners,
R
16
By Dr Elmarie de la Rey, senior manager
of the FSB’s legal department
deferred pensioners and dependents.
There is no legislative prohibition
against membership of two funds simultaneously, so that the same person could be
a deferred member of one pension fund
and an active member of another.
These members belonged to 14 257
funds, a decline of 766 funds. There is no
obligation on an employer to provide pension benefits to employees and therefore
this decline in the number of registered
funds could be an illustration of the fragile
balance constantly to be maintained
between creating a sound regulatory environment without making it so onerous or
expensive that employers refuse to take the
responsibility for the old-age funding of
their employees.
Total assets of all funds amounted to
R867 milliard, with R60 552 million
flowing in as contributions received, R545
million less than in the previous year.
More detailed figures are available for
self-administered funds than for underwritten funds. Their net assets amounted
to R351 760 million. Income from existing investments amounted to R 30 013
million, with another R22 178 million
flowing in as contributions. General
Administration expenses amounted to R4
916 million, of which roughly 40 per cent
(of expenses) went to retirement fund tax
and R 16 million to levies paid to the
Registrar of Pension Funds. Administrators
and investment advisers as a group each
received roughly twenty per cent of the
expenses.
One important ratio to look at is the
ratio between contributions received and
FSB Bulletin
general administration expenses. For every
R22 contributed, R4,92 was used to cover
general costs and a further R2,12 to pay
for death and disability benefits, purchased
from an outside source, a total of just over
R7,00. But this presents a skewed picture,
as the costs include the cost of investing
the existing assets and administering payments to members exiting from the fund.
This figure does make one think about
the efficacy of retirement funds as a vehicle for old-age savings. Too many restrictions without substantial tax incentives,
could lead to a decline in popularity of
retirement funds. Tax incentives balance
the administrative cost.
Investment pattern
It is interesting to look at where the assets
of self-administered pension funds were
invested during 2002.
Although the spread of investments is
prescribed by regulation, there is still a fair
amount of leeway within the prescribed
parameters.
The investment pattern for self-administered funds, according to the Registrar’s
report for 2002, makes for interesting
reading and perhaps reflects the investment flavours of the moment.
Investment in immovable property has
shown a steady decline from 4,2% in 1998
to only 1,1% in 2002. Bills, bonds and
securities have followed a similar pattern,
declining from 14,3% to 10,5%.
Debentures are not a popular investment,
continued on p18
Third Quar ter 2004
FSB says beware of advance fee scams
nvestors must take care not to do
business with Phoenix Capital
Services and RJL International
Limited as they are suspected of
operating advance fee scams.”
This warning follows a recent general
warning to the public about repeated incidences reported to the FSB regarding socalled foreign currency traders, or forex
dealers, who are in fact swindlers. (See
report below.)
Gerry Anderson, the FSB's deputy executive officer for market conduct and consumer education, said that the FSB recently received a letter from the secretary of
the Commonwealth of Massachusetts,
William Galvin, confirming the FSB's
concern.
The letter states that “administrative
‘I
complaints” have been filed against
Phoenix and RJL. The two companies
allegedly contact investors with holdings
in poor-performance penny stocks with
offers to purchase their holdings at prices
up to 200 times the current trading price.
The letter also mentions that the
Massachusetts Securities Division has
received similar complaints regarding
Mercantile International Securities and
Boston Global Financial.
Anderson said the FSB wanted to give
South African investors advance warning
not to deal with any of these companies.
Phoenix and RJL allegedly pretend to
represent buyers interested in anonymously purchasing holdings from the investor.
The companies offer incredible mark-ups
over current trading prices.
FSB warns against phony forex dealers
The FSB warned that it has repeatedly
encountered incidences where so-called
foreign currency traders, or forex dealers,
were in fact swindlers.
“The FSB is concerned that some
investment entities solicit clients under
the guise of being foreign currency dealers when they are in fact swindlers. Some
may even be running boiler room operations or pyramid schemes,” said Gerry
Anderson, the FSB's deputy executive
officer for market conduct and consumer
education.
He said the full implementation of the
Financial Advisory and Intermediary
Services (FAIS) legislation on 30
September this year would bring foreign
Third Quar ter 2004
currency administrators into the regulatory net for the first time.
“The presence of fraudulent companies
is unfortunate, as they taint the reputation of respected foreign currency managers and administrators,” he added.
Besides being extra careful about offers
that sound too good to be true, consumers should be wary when financial
services providers play down the risks
involved, or apply undue pressure. It is
also wise to gather as much information
as possible about the entity that offers
the service before committing to any
deal.
Source: FSB media release
30 August 2004
FSB Bulletin
They then require investors to submit
large advance fees, purportedly to act as
some bond or security until the transaction has been finalised. But once the
investor sends the advance fee, the company disappears.
Both companies have websites providing
Massachusetts addresses and telephone
numbers, but the addresses are false and
the telephone numbers are call-forwarding
lines.
In his letter Galvin says that he wanted
to share this information with the FSB as
globalisation and the availability of
Internet and other communication technology services have encouraged and facilitated investment scams across international borders.
Anderson said the full implementation
of the Financial Advisory and
Intermediary Services (FAIS) legislation on
30 September this year would bring foreign currency administrators into the regulatory net for the first time.
In terms of the FAIS Act all forex dealers are required to obtain a licence from
the FSB before 30 September. Financial
services consumers will furthermore have
the opportunity to report fraudulent operators to the Ombud for Financial Services
Providers when his office comes into operation on 30 September.
Anderson added that consumers should
always be wary of dealers who offer highreturn, low-risk investment opportunities.
It is also wise to gather as much information for one about the entity that offers
the service before committing oneself to
any deal.
Source: FSB media release
9 September 2004
17
Deel-Smith trustees to be prosecuted
Five pension funds that suffered losses of
more than R18 million while under the
administration of investment manager
Stuart Deel-Smith are being liquidated.
The FSB said officers of the funds who
may be criminally liable for the loss suffered by the funds would be prosecuted.
The Commercial Crimes Court is investigating the case.
The High Court in Pretoria authorised
the liquidation of the Small and Medium
Enterprise Independent Preservation
Pension Fund; Small and Medium
Enterprise Independent Pension Fund;
Small and Medium Enterprise
Independent Provident Fund; Small and
Medium Enterprise Independent
Retirement Annuity Fund and Small and
Medium Enterprise Independent
Preservation Provident Fund.
The funds were previously administrated
by two of Deel-Smith’s companies, Benefit
Administrators and Deel-Smith and
Company. Deel-Smith and Company was
not registered as an investment manager as
is required in terms of section 13B of the
Pension Funds Act 24 of 1956 (PFA).
Nikki Howard of Cheadle Thompson &
Haysom Inc, who had been the curator of
the funds since November 2002, was
appointed as liquidator of the funds.
Investigations during the curatorship
revealed that the funds suffered a loss of
Investment pattern
standing at 0,6 per cent and loans at 0,8
per cent. Shares in companies have also
become less popular, declining from
37,4% in 1998 to 29,3% in 2002. Unit
trusts have shown a modest increase, from
4,8% to 6,2% of assets. But the interesting number is the rise in investment in
insurance policies, from 26,1% in 1998 to
35% in 2002.
18
approximately R18.2 million, leaving
more than 350 members with practically
no retirement funds. Many of the members, after a lifetime of saving for their
retirement, are now destitute.
Assets remaining in the funds amounted
to less than R1.5 million.
The reasons for the losses were that the
assets of the funds were not invested in
accordance with the PFA and appear to
have been utilised by the investment manager of the funds, Stuart Deel-Smith, to
fund various investments managed on
behalf of persons other than members of
the funds.
The assets were subsequently lost
through these investments, which were
futures and derivatives.
Deel-Smith Benefit Administrators
administered the funds, while the investments were administered by Deel-Smith
and Company. The two companies
belonged to a group of five companies
placed under the curatorship of Ms
Barbara Richmond of Deloitte.
As at December 2002, the directors of
Deel-Smith Benefit Administrators were
PP Eloff, TD Storbeck, SD Deel-Smith
and GJJ Boshoff. The directors of DeelSmith & Company were PP Eloff, HJ Van
Loggerenberg and Stuart Deel-Smith.
Deel-Smith was the only remaining
trustee after the funds were placed under
from page 16
The underlying assets of the insurance
products are not disclosed, but it is possible that investments of a more speculative
nature, not otherwise encouraged as a
vehicle for pension fund investments, are
included in these insurance products. Here
we think of derivative instruments, hedge
funds and similar investments.
The continued move towards investFSB Bulletin
curatorship. Former trustees of the funds
were GJJ Boshoff, who resigned as a
trustee in 2001; GA Rennie, who resigned
as a trustee in August 2002, immediately
before the funds were placed under curatorship; and JPW Knight, who resigned as
a trustee in October 2002 immediately
after the funds were placed under curatorship.
The principal officer of the funds was
Karen Todd.
The funds were insured for loss resulting
from the negligence, fraud and dishonesty
of officers of the funds for a sum of
approximately R17.1 million. In May
2003, however, attorneys acting on behalf
of the insurer notified Nikki Howard that
the insurers elected to avoid the funds’
policy on the basis that there were material
facts in existence prior to the inception of
the policy, which were not disclosed by the
funds to the insurer.
It appeared that no significant assets
were recoverable. As no further monies
were available for distribution to members,
Howard was authorised by the FSB to recommend to the High Court that the funds
be liquidated.
Source: FSB media release
21 July 2004
ment in insurance products could be an
indication that board members, being
increasingly aware of their fiduciary and
other responsibilities, are more reluctant
to accept the risk of criticism for taking
unwise investment decisions. Board members would rather transfer the risks for
investment decisions to insurers. It will be
interesting to see in the next report of the
Registrar whether these trends continue.
The Registrar’s report for the 2003 calendar year is due in October 2004.
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